You will want to have a say about the future of the firm you've built and you may have a preference as to who takes over your role. You may even wish to remain involved with the company in some way. This is much easier if you keep your business in the family.
Is family succession the best decision?
You may like the idea of keeping your business in the family, but it isn't always the right option. In fact you may have a very clear idea of which relative you would prefer to take over, but this decision is as much theirs as it is yours. You must consider the wishes and capabilities of any successors you have lined up.
Where family is concerned there may be issues of duty or pressure which could affect the decision of a successor. There is no point in pushing for someone to take on your business if they don't feel they want to do it - even if you are convinced they are the right person. If the successor doesn't have their heart in your business, there will be doubtless be a negative impact.
You may like the idea of keeping your business in the family, but it isn't always the right option
Similarly, if your nominated successor doesn't have the right skills or qualifications to do the job you may be better off looking outside family. For example, there may be someone already in your company who has been loyal and knows the business inside-out. Passing over such a candidate for family could also cause unwanted friction among your employees.
Resolving separation anxiety
When you have made the decision to leave your position as business owner, the next step should be to consult with an independent exit strategy adviser. They should be able to help you make a plan and guide you through the process. It is important to get the legal aspects of the succession right and so professional advice is a must.
Coming to terms with the fact that you will no longer be able to make decisions for the company or have involvement other than perhaps drawing an income, can be difficult. If you don't manage to make the mental leap by the time your replacement starts work, things may become tense within your family and could you damage your company and your family relationships.
You could arrange for a complete buy-out which would mean that you would be separated completely from the company, or if you want to keep some involvement you could become an official consultant. The important thing is to make sure it is clear what the roles are and who will be making the decisions. Laying this out in a legal document should keep all parties comfortable with the situation.
What are the tax implications?
Capital Gains Tax is the main risk for you when exiting your business. If you have made a financial gain on shares, or if you have sold the business - even to a family member - you are liable for CGT. There is a current flat rate of 18% (as of April 2008).
The only instance where you would not have to pay CGT on a shareholding that has increased in value, is if you pass it to a spouse or civil partner. You should be aware that could be eligible for what is known as ‘entrepreneurs' relief'. This is when the first £1 million of gains is taxed at a rate of 10%, with anything over that reverting to the standard 18%. There are certain criteria associated with this relief and you should consult your accountant about your eligibility.
It's a big decision to retire from a business in which you have invested much of your time and energy, and having a family member succeed you can be an ideal way to keep your business in safe, familiar hands. However, it pays to be aware of all the pros and cons of doing so before making a decision and putting together an exit plan.
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